torsdag 4 januari 2007

Is Council Tax Fair?

I recently received an email with a link to a story about some pensioners who had gone to prison rather than pay their Council Tax. The story was being publicised by a group called Is it Fair

I found this story very sad. The Council Tax is iniquitous, but part of the iniquitousness is that (a) so much of the money is wasted and (b) pensions have not kept up with rising wages. But "Is it Fair" advocates replacing Council Tax by increases in Income Tax and VAT, which would make matters even worse.

Studies of the subject have repeately shown that VAT and Income Tax cannot, for perfectly practical reasons, be replaced by any form of local VAT and Income Tax, not least because of the widespread avoidance and evasion of these taxes that already takes place which would be even worse if they were local taxes. The thing would also be an administrative nightmare.

Replacing CT, the only truly local tax, by national taxes, would only complete the process which has turned local councils into agencies of central government, which are already centrally financed to the tune of 80%. And replacing Council Tax by VAT/Income Tax would lead to increases of house prices by around £15,000 a property.

Why is this organisation, which is supported by pensioners, missing the most obvious point, that pensioners have been the victim of systematic swindles by successive governments, first through the de-coupling of wages and pensions, next through the fiddling of price indexation to exclude taxes, and third, through the tax changes relating to share dividends, which have hit occupational and private pensions. Which really is enough to be getting on with. It is these problems that should be addressed, and then we need to be trying to achieve a satisfactory tax system.

Income tax/VAT give rise to a multiplicity of problems and the less revenue that is raised from these channels, the better. Both systems are full of loopholes that the better off can exploit eg tax havens, whilst the poor just duck out through fiddling if they can, eg through the cash economy. And so to that extent alone, by promoting disrespect for the law, they are morally corrupting.

Moreover, they are based on illusion. People believe they pay income tax and VAT but the burden really falls on those who employ them, as people regard as "wages" that which they can actually purchase as a result of their work, not some abstract "Gross Pay" figure. The reality is the tax is not paid by employees but by employers.

To put some figures on this. A nominal wage of £25000 costs an employer £27560, and provides an employee with a real wage - the net value of what people can actually buy with their money - of £13800.

This is a huge incentive to get rid of labour, so jobs don't get done, or they get done by machines, often less well, or the work gets sent off to be done in places like Thailand or India - call centres, for example. All of which helps to maintain our army of unemployed and hidden unemployed, nominally on incapacity beneft.

It also means that almost half of all government expenditure, for example, on the NHS, is actually tax which employees never see but is collected straight back, but not before a lot of time and money has been wasted in administration.

There is no excuse for taxing people's labour. It is effectively imposing a punishment for successfully engaging in legal economic activity. It is unnecessary, complicated, discourages people from working and is a major cause of the problems resulting from having 85% of the population living in one-third of the land area of the country.

It is really necessary to look at the whole picture. Like a lot of people of my age, I am myself sitting on a huge pile of land value, as the value of my house, in reality the value of the site it stands on, has increased in value since I bought it in 1983, by far more than I have ever earned or could ever have earned in my life time. This is obscene.

Meanwhile, all around me I see public services in a state of near-collapse, partly due to mismanagement, partly due to understaffing. I see some of the filthiest streets in Western Europe, the worst schools, the worst-behaved young people, the worst hospitals, the most expensive dentistry, a incompetent central and local governments that waste money hand-over-fist, large tracts of the area round where I live turned into a wasteland occupied by an underclass which has been unemployed for three generations, drug taking, drug dealing, drunkenness and disorder, rotten and over-priced public transport, congested and dangerous roads, young people priced out of decent housing, and having to travel several hours a day to get to work, schools that despite massaged success figures, have turned out generations of children whose level of illiteracy and innumeracy makes them unemployable. It is not a pretty sight, and you do not have to go far to see that things can be better.

There is a connection between the two, and the tax system is an important part of the cause.